Which of the following best describes how an increase in the money supply shift the aggregate demand curve ?
Correct answer: C. The money supply shifts right the interest rate falls, investment increases, and the aggregate demand curve shifts right
- A. The money supply shifts right prices fall spending increases and the aggregate demand curve shifts right
- B. The money supply shifts right the interest rate rises investment decreases and the aggregate demand curve shifts left
- C. The money supply shifts right the interest rate falls, investment increases, and the aggregate demand curve shifts right
- D. The money supply shifts right, prices rise, demand curve shifts left
Explanation
An increase in money supply lowers the interest rate, which encourages investment and other interest-sensitive spending. Higher spending shifts aggregate demand to the right.
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